Monday, August 1, 2016

GDP report- Is Obama Recovery running out of steam?

A few thoughts from the surprisingly-low GDP figure of 1.2% growth for the 2nd quarter of 2016.

This graph from Econbrowser gives a good breakdown of how we ended up at that figure. As you'll see, consumer spending actually was quite strong between March and June, adding over 2.8% to GDP last quarter. But inventories shrank by a lot (the pink line), and the rest of the economy also stagnated.

What's also concerning with this release is that after 6 straight quarters of 2% growth or more, we now have had 3 consecutive quarters of lower growth, as Q4 2015 was 0.9% and Q1 2016 was 0.8%. This cuts the year-over-year growth rate to just over 1.2%, which is the lowest in 3 years, and is less than half of where we were at the start of 2015.

Also interesting to note is that government spending declined for the first time since the end of 2014. The government sector had actually boosted GDP in the previous 5 quarters after having a significant decline between 2010 and 2014, and if the economy is truly slowing, you wonder how that'll be reflected with the availability and use of government expenses.

But in all, the economy is still growing, albeit at a slower pace (as you will see by the growth rate leveling off at the end). This means the Obama Recovery is still continuing in the Summer of 2016, now at 7 years and counting.

But 7 years is quite a while to go without recessions, and with U.S. unemployment now below 5%, unemployment claims at the lowest levels since the 1970s, and a strong dollar holding down exports, I have to wonder how long these good times are going to last. It almost seems like we either are heading toward a late-game Bubble in housing and/or stocks (the frequent Rocket Mortgage and "pre-approved" ads should give chills to anyone who remembers what happened in the 2000s), or that the slowdown might turn into something that starts to lead to job losses in areas other than oil drilling and manufacturing.

Don't get me wrong, we're a helluva lot better than we were when Obama took office in January 2009, and that should never be forgotten. But I do think it is appropriate to wonder where things go from here.


  1. Two thoughts from a layman who tries but generally fails to keep up. Much of the rest of the world doesn't seem to be doing so great either what with oil in the tank and maybe some lingering anxiety of Brexit and violence being the Middle East's second biggest export.

    I also can't imagine the ongoing presidential election is giving anybody goosebumps. Between the Democrats pointing at Wall Street and corporate/private big money and the burgeoning cluster of Donald Trump, I can't imagine anybody's going out on a limb.

    As far as spending goes, we seem to do the exact opposite of what we should: when times are good, save your money. When the trends turn south, spend, spend, spend.

    Am I completely off the map on that?

    1. I can't think Brexit, Drumpf, and the oil crash are helping confidence much, but I'd argue that fundamentals of demand are still OK, so it won't collapse things...yet.

      Your second point is completely correct- Government is the stabilizer in both situations (backing off in good times to reduce deficit, stepping in when things go bad).

      That's why that Govt GDP stat is interesting to me- we cut back just as the recovery was starting up, mostly due to new GOP govs like Walker and the Baggers taking over after 2010. I'd argue some of that was by design, trying to slow down the economic recovery before the 2012 elections to try to get Obama defeated.

      You'll note that this figure has picked up in the last year...except for places like Wisconsin, who keeps cutting for some reason. Of course, Drumpf just promised today that he'd add another $500 billion in infrastructure, so maybe help is on the way (with no way to pay for it, of course) :P.

      Good comment.